Entrepreneurship for engineers kenji uchino (CRC, 2010)

Entrepreneurship
for Engineers



Entrepreneurship
for Engineers

Kenji Uchino


CRC Press
Taylor & Francis Group
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Library of Congress Cataloging-in-Publication Data
Uchino, Kenji, 1950Entrepreneurship for engineers / Kenji Uchino.
p. cm.
Includes bibliographical references and index.
ISBN 978-1-4398-0063-8 (pbk. : alk. paper)
1. Entrepreneurship. 2. New business enterprises. I. Title.
HB615.U35 2010
620.0068’4--dc22
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and the CRC Press Web site at


2009030735


Contents
Preface ...............................................................................................................................xvii
About the Author ...............................................................................................................xxi

1

Industrial Evolution—Why Become a Small High-Tech Entrepreneur? ......................1
1.1 Necessity of New Industrial Viewpoints .................................................................. 1
1.1.1 Cu lture Transition ...................................................................................... 2
1.1.2 B iological Evolution.................................................................................... 4

1.1.3 M anagement Structure ............................................................................... 4
1.2 E ntrepreneurial Mind .............................................................................................. 6
1.2.1 Cre ativity Test ............................................................................................ 7
1.2.2 Entrepreneurial Mind Test ......................................................................... 9
1.3 Background of the Case Study Used in Thi s Textbook ...........................................10
1.3.1 Background: Piezoelectric Multilayer Actuators ........................................11
1.3.2 Topics to Be Discussed in Thi s Textbook.................................................. 12
1.3.2.1 Break-Even Analysis, Investment The ory .................................. 12
1.3.2.2 R esearch Contract .....................................................................13
1.3.2.3 P roduction Planning..................................................................13
1.3.2.4 C ash-Flow Analysis ...................................................................14
1.3.2.5 Strategic Business Plan ..............................................................15
Chapter Summary .............................................................................................................15
Practical Exercise Problems................................................................................................16
P1.1 Business Concept Questions ......................................................................16
P1.2 Bu siness Mindset .......................................................................................19
References .........................................................................................................................19

2

Best-Selling Devices—How to Commercialize Your Invention in the Real
World .......................................................................................................................... 21
2.1 Thre e Creativities....................................................................................................21
2.2 T echnological Creativity ........................................................................................ 22
2.2.1 Discovery of a New Function or Material ................................................. 22
2.2.1.1 S econdary Effect ....................................................................... 24
2.2.1.2 S cientific Analogy ..................................................................... 24
2.2.2 P erformance Improvement ........................................................................25
2.2.2.1 S um Effect .................................................................................25
v

vi ◾

Contents

2.2.2.2 C ombination Effect .................................................................. 26
2.2.2.3 P roduct Effects ......................................................................... 26
2.3 Product Planning Creativity ...................................................................................31
2.3.1 Seeds and Needs ........................................................................................31
2.3.2 Innovation Obstacles in Technology Management ....................................33
2.3.3 De velopment Pace .....................................................................................33
2.3.4 S pecifications .............................................................................................33
2.3.5 Product Design Philosophy ...................................................................... 34
2.3.6 S mart Systems .......................................................................................... 36
2.4 M arketing Creativity ............................................................................................. 36
2.4.1 Choose Your Customers ........................................................................... 37
2.4.1.1 Domestic or Foreign? ................................................................ 37
2.4.1.2 Military or Civilian? ................................................................. 38
2.4.1.3 Catch the General Social Trends .............................................. 39
2.4.2 Narrow Your Focus....................................................................................41
2.4.2.1 List All Possible Application Fields ............................................41
2.4.2.2 Start with the Simplest Specifications ........................................41
2.4.2.3 Consider the Cost Performance ................................................ 42
2.4.3 Dominate Your Market ............................................................................ 43
2.4.3.1 Advertisement (Promotion Strategy) ......................................... 43
2.4.3.2 Determine the Appropriate Price .............................................. 44
Chapter Summary ............................................................................................................ 46
Practical Exercise Problems............................................................................................... 46
P2.1 Product Concept Questions ...................................................................... 46

P2.2 “Don’t Read Papers” ..................................................................................47
References ........................................................................................................................ 48

3

Corporation Start-Up—How to Establish Your Company ........................................49
3.1 The Founder and Team.......................................................................................... 50
3.1.1 Persuasion of the Family ........................................................................... 50
3.1.2 The Timmons Model of the Entrepreneurial Process ................................ 50
3.2 L egal Procedure ......................................................................................................51
3.2.1 Forms of Organization ..............................................................................51
3.2.2 S tart-Up Members .....................................................................................52
3.2.3 C ompany Location ....................................................................................52
3.2.4 C apital Money ...........................................................................................52
3.2.5 L egal Process .............................................................................................52
Chapter Summary ............................................................................................................ 56
Practical Exercise Problems................................................................................................57
P3.1 Corporation Structure Questions ..............................................................57
P3.2 Venture Supporting Organization .............................................................57
References .........................................................................................................................57

4

Business Plan—How to Persuade Investors ...............................................................59
4.1 E xecutive Summary ................................................................................................61
4.1.1 V enture History .........................................................................................61
4.1.2 C ompany Description .............................................................................. 62
4.1.3 C ompany Organization ............................................................................ 63

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vii

4.1.4 M arketing Plan......................................................................................... 63
4.1.5 C ompany Operations ............................................................................... 63
4.1.6 F inancial Plan ........................................................................................... 64
4.2 Management and Organization ............................................................................. 64
4.2.1 M anagement Team ................................................................................... 64
4.2.2 Compensation and Ownership ................................................................. 64
4.2.3 Board of Directors/Advisory Council ........................................................65
4.2.4 I nfrastructure ............................................................................................65
4.2.5 Contracts and Agreements ........................................................................ 66
4.2.6 I nsurance .................................................................................................. 66
4.2.7 O rganization Charts ................................................................................. 66
4.3 P roduct/Service ......................................................................................................67
4.3.1 Purpose of the Product/Service ..................................................................67
4.3.2 Stages of Development...............................................................................67
4.3.3 Future Research and Development ............................................................67
4.3.4 Trademarks, Patents, Copyrights, Licenses, and Royalties ........................ 68
4.3.5 G overnment Approvals ............................................................................. 68
4.3.6 Product/Service Limitations and Liability ................................................ 69
4.3.7 P roduction Facility ................................................................................... 70
4.3.8 S uppliers ................................................................................................... 70
4.4 M arketing Plan...................................................................................................... 70
4.4.1 I ndustry Profile......................................................................................... 70
4.4.1.1 Industry Market Research ........................................................ 70
4.4.1.2 G eographic Locations ............................................................... 71

4.4.1.3 P rofit Characteristics ................................................................ 71
4.4.1.4 D istribution Channels .............................................................. 72
4.4.2 C ompetition Profile .................................................................................. 72
4.4.3 Cu stomer Profile ....................................................................................... 73
4.4.4 Target Market Profile ............................................................................... 73
4.4.5 P ricing Profile ........................................................................................... 73
4.4.6 Gross Margin on Products and Services.................................................... 73
4.4.7 M arket Penetration ....................................................................................74
4.5 Operating and Control Systems............................................................................. 75
4.5.1 Administrative Policies, Procedures, and Controls.................................... 75
4.5.2 Documents and Paper Flow .......................................................................76
4.5.3 P lanning Chart ..........................................................................................76
4.5.4 R isk Analysis ............................................................................................ 77
4.6 G rowth Plan .......................................................................................................... 77
4.6.1 N ew Offerings to the Market ................................................................... 77
4.6.2 C apital Requirements ............................................................................... 77
4.6.3 P ersonnel Requirements............................................................................ 78
4.6.4 E xit Strategy ............................................................................................. 78
4.7 F inancial Plan........................................................................................................ 78
4.7.1 Sales Projections/Income Projections ........................................................ 78
4.7.2 C ash Requirements................................................................................... 78
4.7.3 Sources of Financing ................................................................................ 78
4.7.3.1 Attached Financial Projections ................................................. 79


viii ◾

Contents

Chapter Summary .............................................................................................................81

Practical Exercise Problems............................................................................................... 82
P4.1 Bu siness Plan ............................................................................................ 82
P4.2 Reviewers of the Business Plan ................................................................. 82
References ........................................................................................................................ 83

5

Corporate Capital and Funds—How to Find Financial
Resources ....................................................................................................................85
5.1 Debt and Equity—Financial Resources at the Start-Up Stage ................................85
5.1.1 Stock or Loan ............................................................................................85
5.1.2 P artnership ............................................................................................... 86
5.1.3 Venture Capital/Angel Money .................................................................. 86
5.1.4 B ank Loans .............................................................................................. 86
5.2 Research Funds—How to Write a Successful Proposal.......................................... 87
5.2.1 Small Business Innovation Research (SBIR) Programs ............................. 87
5.2.2 Successful Proposal Writing ..................................................................... 87
5.2.2.1 Finding a Suitable Solicitation .................................................. 87
5.2.2.2 Writing a Successful Proposal ................................................... 87
5.2.3 Successful Proposal Presentation .............................................................. 95
5.2.3.1 Structure Presentation Visuals .................................................. 95
5.2.3.2 W ords–Visual Suggestions ........................................................ 95
5.2.3.3 F igures–Visual Suggestions....................................................... 95
Chapter Summary ............................................................................................................ 97
Practical Exercise Problems............................................................................................... 97
P5.1 P roposal Writing ...................................................................................... 97
P5.2 Project Report Modification Practice ........................................................ 97
P5.3 Presentation File Preparation .................................................................... 98
References ........................................................................................................................ 98

6

Corporate Operation—Survival Skills in Accounting and Financial
Management ...............................................................................................................99
6.1 Accounting Management—Sales and Payroll ...................................................... 100
6.1.1 Da ily Accounting ....................................................................................101
6.1.1.1 Product Costs and Period Costs...............................................101
6.1.1.2 Recording Journal Entries in the Ledger..................................101
6.1.1.3 Accounting Schedules and Income Statements ........................105
6.1.2 F inancial Statements ................................................................................107
6.1.2.1 I ncome Statements ..................................................................107
6.1.2.2 B alance Sheets .........................................................................108
6.1.2.3 C ash-Flow Statements .............................................................110
6.1.3 Demand, Supply, and Market Equilibrium ............................................. 111
6.1.3.1 M arket Equilibrium ................................................................ 111
6.1.3.2 Dem and Elasticity ...................................................................113
6.1.4 B reak-Even Analysis ................................................................................ 115
6.1.4.1 Break-Even Analysis Method ................................................... 115
6.1.4.2 Degree of Operating Leverage .................................................117
6.1.4.3 M arginal Analysis ....................................................................118


Contents

◾

ix

6.1.5

Tax Reduction Considerations .................................................................121
6.1.5.1 Timing of Purchases and Bad-Debt “Write-Offs”....................121
6.1.5.2 Dep reciation ............................................................................121
6.1.5.3 T ax Credit .............................................................................. 123
6.1.6 Cash Flow Analysis................................................................................. 124
6.2 Financial Management—Fundamentals of Finance ............................................ 126
6.2.1 Key Financial Ratios............................................................................... 126
6.2.1.1 P rice-Earnings Ratio............................................................... 126
6.2.1.2 F inancial Analysis ................................................................... 126
6.2.2 F inancial Forecasting .............................................................................. 128
6.2.2.1 Pro Forma Statements............................................................. 128
6.2.2.2 L inear Regression ....................................................................129
6.2.2.3 Standard Deviation and Risk...................................................132
6.2.3 Time Value of Money ..............................................................................133
6.2.3.1 Future Value—Single Amount ................................................133
6.2.3.2 F uture Value—Annuity .......................................................... 134
6.2.4 S hort-Term Financing ............................................................................. 134
6.2.4.1 D iscounted Loan .....................................................................135
6.2.4.2 C ompensating Balances ...........................................................135
6.2.4.3 Commercial Bank Financing .................................................. 136
6.2.4.4 I nstallment Loans ................................................................... 136
6.2.5 I nvestment Decisions .............................................................................. 136
Chapter Summary ...........................................................................................................139
Practical Exercise Problems..............................................................................................142
P6.1 Depreciation as a Tax Shield ....................................................................142
P6.2 Dem and Elasticity ...................................................................................142
P6.3 P ension Calculation .................................................................................142
P6.4 Research Fund Forecasting ......................................................................143
References .......................................................................................................................144

7

Quantitative Business Analysis—Beneficial Tools for Business ..............................145
7.1 L inear Programming ............................................................................................147
7.1.1 M athematical Modeling ..........................................................................147
7.1.2 G raphical Solution...................................................................................148
7.1.3 Excel Spreadsheet Solver ..........................................................................149
7.1.4 I nteger Model ..........................................................................................153
7.1.5 B inary Model ..........................................................................................154
7.2 Program Evaluation and Review Technique .........................................................157
7.2.1 P ERT Network........................................................................................159
7.2.2 P ERT Approach ......................................................................................159
7.2.2.1 Earliest Start/Finish Times ......................................................160
7.2.2.2 Latest Start/Finish Times ........................................................161
7.2.2.3 Critical Path and Slack Times .................................................164
7.2.2.4 Analysis of Possible Delays.......................................................166
7.2.3 G antt Charts ...........................................................................................166
7.2.4 Probabilistic Approach to Project Scheduling ..........................................168


x

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Contents

7.2.5

Critical Path Method ...............................................................................169
7.2.5.1 Linear Programming Approach to Crashing ............................170

7.3 G ame The ory........................................................................................................173
7.3.1 Two-Person Zero-Sum Game ..................................................................173
7.3.2 G ame The ory Outline .............................................................................174
7.3.3 R ock-Paper-Scissors .................................................................................177
7.3.4 Case Study for Bidding on the Multilayer Actuator .................................178
7.3.4.1 De cision-Making Criteria ........................................................181
Chapter Summary ...........................................................................................................185
Practical Exercise Problems..............................................................................................187
P7.1 L inear Programming ...............................................................................187
P7.2 Janken Game ...........................................................................................198
P7.3 P ERT.......................................................................................................198
References .......................................................................................................................199

8

Marketing Strategy—Fundamentals of Marketing..................................................201
8.1 M arketing Research..............................................................................................201
8.1.1 The Five Ps of Marketing Research ..........................................................201
8.1.1.1 Purpose of the Research.......................................................... 202
8.1.1.2 Plan for the Research .............................................................. 202
8.1.1.3 Performance of the Research .................................................. 202
8.1.1.4 Processing of the Research Data ............................................. 202
8.1.1.5 Preparation of the Research Report ........................................ 202
8.1.2 T arget Marketing.................................................................................... 202
8.1.2.1 Dem ographic .......................................................................... 203
8.1.2.2 P sychographic ......................................................................... 203
8.1.2.3 U sage Related ......................................................................... 203
8.1.3 Market Research Examples ..................................................................... 204
8.1.3.1 S econdary Data ...................................................................... 204
8.1.3.2 P rimary Data .......................................................................... 205

8.2 P ortfolio Model ................................................................................................... 206
8.2.1 P ortfolio The ory ..................................................................................... 206
8.2.2 Boston Consulting Group Model ........................................................... 207
8.3 Marketing Mix Four Ps ....................................................................................... 208
8.3.1 P roduct ................................................................................................... 208
8.3.1.1 P roduct Differentiation........................................................... 208
8.3.1.2 Product Life Cycle .................................................................. 209
8.3.2 P rice ....................................................................................................... 209
8.3.2.1 C ost-Plus Pricing .....................................................................210
8.3.2.2 F air/Parity Pricing ...................................................................210
8.3.2.3 S kimming Price .......................................................................210
8.3.2.4 P enetration Price......................................................................210
8.3.3 P lace ........................................................................................................210
8.3.4 P romotion ...............................................................................................211
8.3.4.1 A dvertising Effectiveness .........................................................211
8.3.4.2 P romotion Mix ........................................................................211
Chapter Summary ...........................................................................................................213


Contents

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xi

Practical Exercise Problems..............................................................................................213
P8.1 M arket Research ......................................................................................213
P8.2 Cost per Tho usand ..................................................................................214
References .......................................................................................................................214

9

Intellectual Properties—How to Protect the Company’s Technology .....................215
9.1 I ntellectual Properties ...........................................................................................215
9.2 Why Is Intellectual Property Important? ..............................................................217
9.2.1 When Your Company Manufactures the Patented Product .....................217
9.2.2 When Your Company Does Not Manufacture the Patented Product ......217
9.2.3 T rade Secrets ...........................................................................................217
9.3 P atent Preparation ................................................................................................218
9.3.1 Patent Idea Search ...................................................................................218
9.3.1.1 S erendipity ..............................................................................218
9.3.1.2 S ystematic Approach................................................................219
9.3.1.3 P atentability............................................................................ 220
9.3.2 P atent Format ......................................................................................... 222
9.4 Patent Infringement (Lawsuits)............................................................................ 224
9.4.1 Patent Infringement Example Problem ................................................... 225
9.4.2 Background of the Related Patents ......................................................... 225
9.4.3 Comments by the Author ....................................................................... 226
Chapter Summary .......................................................................................................... 227
Practical Exercise Problems............................................................................................. 228
P9.1 P atent Evaluation .................................................................................... 228
P9.2 Invention in the Company...................................................................... 229
References ...................................................................................................................... 230

10 Human Resources—Who Should We Hire? .............................................................231

10.1 Legal Issue Essentials in Human Resources Management ....................................231
10.1.1 K ey Laws .................................................................................................231
10.1.2 Civil Rights Act Coverage ...................................................................... 232
10.1.2.1 Bona Fide Occupational Qualification ................................... 232

10.2 E mployee Collection ........................................................................................... 232
10.2.1 C orporate Executives .............................................................................. 232
10.2.1.1 Qu alifications of Corporate Executives................................... 232
10.2.1.2 S earching Methods ..................................................................233
10.2.1.3 C onflict of Interest with Yourself .............................................233
10.2.1.4 A greement Example.................................................................233
10.2.1.5 Enterprise Incentive Plans....................................................... 234
10.2.2 S ubordinates Collection...........................................................................235
10.2.2.1 J ob Description/Interview .......................................................235
10.2.2.2 H iring Students—Conflict of Interest .....................................235
10.2.2.3 A greement Example.................................................................235
10.2.2.4 E mployee Turnover..................................................................235
10.2.2.5 E mployee Benefits .................................................................. 236
10.2.2.6 Safety and Health ................................................................... 236
10.2.3 Ou tsourcing, Offshoring, and Employee Leasing ................................... 237


xii

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Contents

10.3 I nternational Employees ...................................................................................... 237
10.3.1 SB IR/STTR Restrictions ........................................................................ 237
10.3.1.1 W orkforce............................................................................... 237
10.3.1.2 C learances .............................................................................. 238
10.3.2 V isa Application ..................................................................................... 238
10.3.2.1 Hiring an Engineer Immediately After Graduation from
the University ......................................................................... 238

10.3.2.2 Hiring an Engineer from Another Company .......................... 238
10.4 Human Resources Management in the United States and Japan ......................... 239
10.4.1 Introduction to Human Resources Management.................................... 240
10.4.2 Individual versus Group ..........................................................................241
10.4.2.1 L iving Philosophy ....................................................................241
10.4.2.2 W orking Style ......................................................................... 244
10.4.3 D ifferential versus Integral.......................................................................245
10.4.3.1 I ndustry Type ..........................................................................245
10.4.3.2 Employment and Performance Appraisal Criteria ................... 246
10.4.4 Regatta versus Mikoshi ............................................................................247
10.4.4.1 M anagement Structure ............................................................247
10.4.5 C oncluding Remarks ...............................................................................249
Chapter Summary ...........................................................................................................250
Practical Exercise Problems..............................................................................................251
P10.1 O rganization Chart .................................................................................251
P10.2 C onflict of Interest ..................................................................................251
References .......................................................................................................................251

11 Business Strategy—Why It Is Important, and How to Set It Up .............................253
11.1 SWOT Matrix Analysis ........................................................................................253
11.2 STEP Four-Force Analysis for External Environments .........................................255
11.2.1 S ocial/Cultural Forces .............................................................................255
11.2.2 T echnological Forces ...............................................................................256
11.2.2.1 S pecifications ...........................................................................256
11.2.2.2 C ost Minimization ..................................................................256
11.2.3 E conomic Forces .....................................................................................257
11.2.4 P olitical/Legal Forces...............................................................................257
11.3 Five-Force Analysis for Proximate Environments..................................................259
11.3.1 Rivalry among Competing Firms ........................................................... 260
11.3.2 Development of Substitute Products ....................................................... 260

11.3.3 Entry of New Competitors ......................................................................261
11.3.4 Bargaining Power of Suppliers ................................................................ 262
11.3.5 Bargaining Power of Consumers............................................................. 262
11.4 Business Strategy Format ..................................................................................... 263
11.5 Business Strategy Case Study I: MMI’s Expansion .............................................. 264
11.5.1 Shall We Shift to a Mass-Production Company? Executive
Summary ................................................................................................264
11.5.2 Background of This Strategic Planning ....................................................265
11.5.2.1 Necessity of SWOT Analysis ...................................................265


Contents

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xiii

11.5.3 External Environment Analysis .............................................................. 266
11.5.3.1 R emote Environment ............................................................. 266
11.5.3.2 P roximate Environment.......................................................... 268
11.5.4 Internal Environment Analysis ................................................................271
11.5.4.1 M anagerial Orthodoxy ............................................................271
11.5.4.2 Op erations .............................................................................. 273
11.5.4.3 F inancial Situation ................................................................. 277
11.5.4.4 M embers................................................................................. 280
11.5.4.5 M arketing............................................................................... 280
11.5.5 S trategic Position .....................................................................................281
11.5.6 Recommendations, Goals, and Objectives .............................................. 285
11.5.6.1 Recommendation 1: SWOT Analysis ..................................... 285
11.5.6.2 Recommendation 2: Financial Crisis ...................................... 285

11.5.6.3 Recommendation 3: Possible Future Competitors .................. 286
11.6 Business Strategy Case Study II: MMI’s Restructuring ....................................... 286
11.6.1 T roubled Company................................................................................. 286
11.6.2 MMI Situation Analysis ......................................................................... 286
11.6.3 R estructuring Strategy............................................................................ 287
11.6.3.1 Introduction of New Capital .................................................. 287
11.6.3.2 Ownership Change of MMI ................................................... 288
11.6.3.3 Introduction of a New President ............................................. 289
11.6.3.4 MMI Employee Replacement ................................................. 289
Chapter Summary .......................................................................................................... 290
Practical Exercise Problem ...............................................................................................291
P11.1 P roduction Strategy .................................................................................291
References .......................................................................................................................291

12 Corporate Ethics—Keep it in Mind! ........................................................................293

12.1 Ethics and Morals.................................................................................................293
12.2 Ethics, Law, Religion, and Education .................................................................. 294
12.2.1 Darwin’s Evolution The ory ..................................................................... 294
12.2.2 P roduction Regulation............................................................................ 294
12.2.2.1 M MI Example ........................................................................ 294
12.2.2.2 G un Control ........................................................................... 294
12.2.2.3 Tobacco and Food Control ..................................................... 295
12.3 Bu siness Ethics .................................................................................................... 295
12.3.1 C onflict of Interest ................................................................................. 295
12.3.2 C onfidentiality ....................................................................................... 296
12.3.3 E xecutive Compensation ........................................................................ 296
12.3.4 P roduction Ethics ................................................................................... 297
12.3.4.1 P roduct Liability..................................................................... 297
12.3.4.2 Qu ality Control ...................................................................... 297

12.3.5 Truth in Advertising ............................................................................... 297
12.3.6 D iscrimination/Sexual Harassment ........................................................ 298
12.3.7 F iring Employees .................................................................................... 298
12.4 Comparison of Corporate Ethics between the
United States and Japan....................................................................................... 298


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12.4.1 B ackground ............................................................................................ 298
12.4.2 Ethics in Society and Culture ................................................................. 299
12.4.2.1 Living Philosophy and Religion .............................................. 299
12.4.2.2 Corporation and Individual Ethics ......................................... 300
12.4.2.3 E ducation Principles ............................................................... 300
12.4.2.4 I ndustry Type ......................................................................... 302
12.4.3 Ethics in Management............................................................................ 303
12.4.3.1 O ffice Atmosphere .................................................................. 303
12.4.3.2 M anagement Structure ........................................................... 303
12.4.3.3 M anagement Culture ............................................................. 303
12.4.3.4 Employment and Evaluation Criteria...................................... 304
12.4.4 Ethics in Research and Development...................................................... 305
12.4.4.1 Research and Development Attitude ...................................... 305
12.4.4.2 Big Science Projects ................................................................ 306
12.4.4.3 Research and Development Style ............................................ 307
12.4.4.4 Ethical Restrictions in R&D Topics ....................................... 308
12.4.4.5 Qu ality Control ...................................................................... 309
12.4.5 C oncluding Remarks ...............................................................................311
Chapter Summary ...........................................................................................................311

Practical Exercise Problems..............................................................................................312
P12.1 Business Ethics Questions .......................................................................312
P12.2 T echnology Dilemma ..............................................................................312
References .......................................................................................................................313

13 Now It’s Your Turn—The Future of Your Company .................................................315

13.1 Review of Key Points ............................................................................................ 315
13.2 Bu siness Globalization..........................................................................................316
13.2.1 I nternational Corporations ......................................................................316
13.2.2 T rading Practices .....................................................................................317
13.2.2.1 I mport/Export Restrictions .....................................................317
13.2.2.2 Cu ltural Misunderstandings ....................................................318
13.2.2.3 P olitical Uncertainty................................................................318
13.2.2.4 E conomic Conditions ..............................................................318
13.3 Case Study: Product Promotion in Japan .............................................................319
13.3.1 Background of the Japanese Business Atmosphere ...................................319
13.3.2 Before Arrival—Preliminary Contact ..................................................... 320
13.3.2.1 C ommunication Methods ...................................................... 320
13.3.2.2 Forms of Address .................................................................... 322
13.3.2.3 Airport Pick-Up and Hotel Reservations ................................ 322
13.3.3 I n Japan .................................................................................................. 323
13.3.3.1 Cellular Phone Rental............................................................. 323
13.3.3.2 C ash Kingdom ....................................................................... 323
13.3.3.3 S moking Kingdom ................................................................. 323
13.3.3.4 H otel Conditions .................................................................... 323
13.3.3.5 Bu siness Meetings ...................................................................324
13.3.3.6 Product Sales Promotion ........................................................ 326
13.3.3.7 Bu siness Agreements............................................................... 328
13.3.3.8 After 5 O’Clock Session...........................................................329

Contents

◾

xv

13.3.4 F ollow Up............................................................................................... 330
13.3.5 Ep ilogue ..................................................................................................331
Chapter Summary ...........................................................................................................332
Practical Exercise Problems..............................................................................................333
P13.1 Japanese Language Essentials ..................................................................333
P13.2 Foreign Currency Training ......................................................................333
References ...................................................................................................................... 334
Index .................................................................................................................................335



Preface
There is a general trend, regardless of country, toward an increase in entrepreneurial enterprises. A
young engineer who invents or develops a new technology or comes across a new idea tries to set
up his or her own company in order to commercialize the invention. From a historical viewpoint,
the large corporation period ended in the twentieth century in advanced countries, and I would
like to call this new twenty-first century the “high-tech entrepreneur” age, when small business
corporations take the lead in Industrial Evolution (not Revolution!). This is analogous to the historical transition from huge dinosaurs to small mammals.
However, m any yo ung re searchers h esitate to s tart t heir o wn c ompany. This t extbook is
designed to a nswer f requently a sked questions f rom t hese a mbitious entrepreneurs. Topics w ill
include:
1.

2.
3.
4.
5.
6.

How to start up a company
How to create product lines
How to get venture capital funding
How to write successful federal funding proposals
How to manage finances in a small firm, in particular, cash flow
How to ke ep a u niversity position while a lso operating your own c ompany (a c onflict of
interest)

Although many are ambitious enough to start their own companies, only a few ventures can survive and succeed in business. Why? Lack of fortune, perhaps? Yes, that is partially true. But, I do
not believe it is merely due to lack of fortune, since few fortune-tellers are millionaires. I believe
there i s a s ystematic preparation process to b e followed i n order to b uild a g reat reputation i n
the c ommercial m arketplace (i.e., to cre ate a b est s eller). This is t he m otivation f or t his boo k:
Entrepreneurship for Engineers .
I have been a p rofessor for 35 years and a re search-center director. During this time, I h ave
also spent 19 years as a corporate executive in the roles of president, vice president, and lab director, a nd h ave b een c losely i nvolved w ith t he c ommercialization of over 6 0 fer roelectric de vices
with various international firms. I have been a professor, vice president, research and development
(R&D) center deputy director, and a standing auditor at several universities and private companies
in both Japan and the United States. I am a company executive and (not or) a university professor,
simultaneously. I fi nd t his important for commercializing research immediately into real-world
products.
xvii


xviii

◾

Preface

This textbook is particularly suitable for graduate and undergraduate students majoring in engineering and also working engineers who are interested in starting up their own companies using
their technological expertise. This book is also appropriate for those who are just starting or are
about to start a company, as well as MBA students who are interested in high-tech companies.
I re cently fi nished a n M BA program a nd noticed t wo p oints w hich d iffer f rom t he t ypical
coursework for high-tech entrepreneurs:
1. Most o f t he sc enarios fo r m anagement c ourses s tart f rom a su pposition t hat: “ You a re
employed as a middle manager in a 1000-employee company. How will you work under the
corporate executives and above your subordinates?” However, an entrepreneurial firm such as
my company, MMech, has only a couple of partner–employees with similar corporate rank.
Regular human resources management in a large firm may not be applicable to a start-up.
2. Most entrepreneurial classes in MBA curricula teach “How to s tart up a re staurant or a n
apparel shop,” or a nother g eneral sm all business. The July 2 008 i ssue of t he j ournal Inc .
contained an article titled “How to Launch a Successful Start-Up.” It introduced four young
companies: a s weets shop, a p hoto shop (conversion f rom old photos to d igital format), a
sweater business, a nd a n e vent Web site business. These were v ery at tractive f rom a b usiness model viewpoint. However, high-tech start-ups are quite different. High-tech start-ups
introduce new technology to the market, and therefore their needs and structures are different from companies that replicate other similar businesses.
Based on the above points, I h ave emphasized t wo concepts in this book. First, the fundamentals of global economics, accounting, finance, and quantitative business analysis are provided in
simple language for engineers as survival skills, because ordinarily engineers lack this knowledge.
Second, that high-tech entrepreneurial success is based on (1) the business plan, (2) successful proposal writing, (3) SWOT analysis, (4) intellectual property, and (5) engineering ethics. I selected
only important and basic items to help you understand how to start-up and operate a company by
commercializing a new invention. The emphasis is on practical and utilitarian applications rather
than on abstruse matter that a student may need to learn to pa ss an MBA exam. Various actual
examples a re p rovided w hich c an b e re vised fo r yo ur u se. I a lso w ish to de scribe m y p ersonal
philosophy on how to de velop best-selling devices, especially in the area of smart materials and
structures, as examples. This sort of strategic “business and administration” viewpoint is, I believe,

as important as the practical technological development of devices to a junior engineer, who is just
starting or is going to start his or her own entrepreneurial company.
Chapter 1 d iscusses my concept of “Industrial Evolution,” which is different from Industrial
Revolution. High-tech entrepreneurs may take the industrial lead position in the twenty-first century. In this book, a fi ctitious entrepreneur, Dr. Barb Shay, and her company, Micro Motor, Inc.
(MMI), are introduced, so that the case studies using her company can be easily understood. You
can imagine that MMI is a hybridized firm of multiple existing corporations.
In C hapter 2 , “ Best-Selling De vices,” t hree cre ativities fo r b usiness suc cess a re i ntroduced,
based on the ideas of Sony’s former president Dr. Morita. We will start from technological creativity. Of course, the engineering reader who wishes to start his or her own company is usually
required to have (or will already have) his or her own invention. I will suggest how to cultivate your
technological creativity in this chapter. Then, I will describe the key point, product planning creativity, detailing how to turn a primitive idea into a real product. Marketing creativity is considered
briefly, taken up again in detail in Chapter 8. This development sequence (seed-push) is typical
in an entrepreneur company, but the sequence may be just the opposite in a big company; that is,


Preface ◾

xix

market research fi rst, followed by technological development, and product planning (need-pull).
Chapter 2 provides you with a quick overview of the context of this textbook.
Chapter 3 explains “Corporation Start-Up.” Team-setting and legal procedures will be reviewed.
Chapter 4, “B usiness Plan,” is essential for fi nding investors. It describes ho w to write an attractive and practical business plan. M ore than 50% of star t-up companies will become bankr upt in
less than 4 y ears, according to U.S. statistics. Chapter 5, “Corporate Capital and F unds,” covers
information essential for an entr epreneur owner to collect the necessar y funding, though many
engineers may not be interested in it. I will introduce how to apply for Small Business Innovation
Research (SBIR) pr ograms in this Chapter , which is a unique “high-tech ” star t-up oppor tunity.
Chapter 6, “Corporate Operation,” describes some financial and accounting basics needed to operate a corporation on a daily basis.
Chapter 7, “Quantitative Business Analysis,” may be easy for the typical engineer. Fundamental
mathematical skills will be introduced with an Excel “Solver” tool used to analyze linear programming, PERT, and game theor y problems. Chapter 8, “M arketing Strategy,” explains the famous
four Ps of marketing: product, price, promotion, and place, which will be new to typical engineers.

Chapter 9, “Intellectual Properties,” will discuss how to protect your new idea from the competitors. Chapter 10, “H uman Resources,” describes how to fi nd suitable engineers for y our start-up
company, including dealing with visa applications for international employees.
Even though we write a business plan in Chapter 4, Chapter 11, “Business Strategy,” is devoted
to deeply a nalyzing the original strategy 1 o r 2 ye ars a fter start-up. This is to evaluate business
success in order to modify or change the original plan, if necessary, before catastrophes such as
bankruptcy occur. Chapter 12, “Corporate Ethics,” is a sort of appendix from my viewpoint.
Ethics differ widely according to e ducation history, country, culture, and religion. There are no
unique absolute ethics in the world. The epilogue chapter discusses the future of your company,
through your de sire for suc cess: Chapter 13, “Now It’s Your Turn.” A fter t he su mmary of t his
book’s content, the rest of the chapter relates to business globalization.
Although I h ave e xtensive i nternational b usiness e xperience, I h ad n ot re ceived s ystematic
training in business and administration until my education at SFU. Th is textbook is essentially my
MBA thesis: each chapter represents a course taken at St. Francis University (SFU) over a 4-year
period. Actually, I h ave been a p rofessor in the morning, senior vice president in the afternoon,
and a graduate student at night in these 4 years.
First, I a cknowledge the following professors at S FU, without whom I c ould not have completed this book.
Dr. Randy Frye, MBA Program Director
Dr. Mahabub Islam
Dr. Jim Logue
Dr. Dennis P. McIlnay
Dr. John D. McGinnis
Dr. John S. Miko
Mr. Robert A. Low
Mr. Robert E. Griffin
Mr. Adam Conrad
Dr. Larry Rager
Secondly, I would like to thank the following colleagues, who reviewed this book and provided
helpful modifications and comments:
Dr. Michael Strauss, President of HME
Dr. Alfredo Vazquez Carazo, President of Micromechatronics, Inc.

xx ◾

Preface

Dr. Seung-Ho Park, R&D Director of Micromechatronics Inc.
Dr. Gareth Knowles, President of QorTek
Last, as I w ill discuss in Chapter 3, one of the most important factors for an entrepreneur is
understanding of his or her family. For that, this book is dedicated with my deepest love to my
wife, Michiko Uchino, who permitted and encouraged my new business.
Kenji Uchino
Pennsylvania State University
State College, PA


About the Author
Kenji U chino, a p ioneer i n t he de velopment o f p iezoelectric a ctuators, i s t he d irector o f t he
International Center for Actuators and Transducers (ICAT), and a professor of electrical engineering
at Pennsylvania State University. Since 2004, he has been senior vice president of Micromechatronics
Inc. He has been a university professor for 35 years and a company executive for 19 years.
After being awarded a PhD (per CMS) from the Tokyo Institute of Technology, Dr. Uchino
became a research associate in the physical electronics department. In 1985, he joined the Sophia
University in Japan as an associate professor in physics. In 1991, he moved to Pennsylvania State
University. H e w as a lso i nvolved w ith t he S pace S huttle Utilizing C ommittee o f t he N ational
Space Development Agency (NASDA) in Japan between 1986 and 1988, and was the vice president of NF Electronic Instruments in the United States, between 1992 and 1994. He has been
a consultant to m ore t han 90 Japanese, U.S., a nd European industries to c ommercialize piezoelectric a ctuators a nd e lectro o ptic de vices. H e i s t he c hairman o f t he S mart A ctuator/Sensor
Study Committee, partly sponsored by the Japanese Ministry of International Trade and Industry
(MITI). H e w as a lso t he e xecutive a ssociate e ditor fo r t he Journal o f Adv anced P erformance
Materials (Kluwer Academic) and the associate editor for the Journal of Intelligent Material Systems

and Structures (Technomic), and the Japanese Journal of Applied Physics. He has also served as an
administrative committee member for IEEE, Ultrasonics, Ferroelectrics, the Frequency Control
Society, and as a secretary for the American Ceramic Society, Electronics Division.
Dr. Uchino was made a fellow of the American Ceramic Society in 1997. He has been a member
of IEEE for 20 years. He received the SPIE Smart Product Implementation (SPIE) Award in 2007,
the R&D 100 Award in 2007, the American Society of Mechanical Engineers Adaptive Structures
Prize in 2005, the Outstanding Research Award from the Penn State Engineering Society in 1996,
and the Best Paper Award from the Japanese Society of Oil/Air Pressure Control in 1987.
Dr. Uchino’s research interests are in solid state physics—especially dielectrics, ferroelectrics,
and piezoelectrics, including basic research on materials, device designing, and fabrication processes, as well as development of solid state actuators and displays for precision positioners, ultrasonic motors, and projection type TVs. He has authored 550 papers, 55 books, and 26 patents in
the piezoelectric actuator field. He currently teaches three graduate courses: Micromechatronics,
Ferroelectric Devices, and Applications of the Finite Element Method for Smart Structures. His
business i nterests a re, of c ourse, i n c ommercializing h is i nventions worldwide. He re ceived h is
MBA at Saint Francis University in Pennsylvania, and is establishing his entrepreneurship teaching materials for young researchers a nd engineers. He has taught How to De velop Best-Selling
Devices for seven years, and plans to teach Entrepreneurship for Engineers using this textbook.
xxi


xxii

◾

About the Author

In addition to his academic career, Dr. Uchino is an honorary member of KERAMOS (the
National Professional Ceramic Engineering Fraternity) and in 1989, he received the Best Movie
Memorial Award at t he Japan Scientific Movie Festival a s t he d irector a nd producer of a s eries
of e ducational v ideotapes o n “ Dynamical Op tical Obs ervation o f F erroelectric Do mains” a nd
“Ceramic Actuators.”
Year

80

70

90

2000

10

Tokyo Inst Tech
Sophia University
Penn State University

University Professor

Tokyo Savor Electronics
NF Electronic Instruments
NEI

Industry Executive

Micromechatronics Inc.
Consultant

More than 90 Companies Worldwide

Figure P1 Personal history of Kenji Uchino.

Chapter 1

Industrial Evolution—Why
Become a Small High-Tech
Entrepreneur?
1.1 Necessity of New Industrial Viewpoints
Most university students try to fi nd positions in large companies because they think small companies a re n ot s table, a nd t he s alaries t hey off er may be lower. This i s pa rtially t rue, b ut n ot
completely t rue fo r t he so -called high-tech ent repreneur. F igure 1.1 [1] c ompares m ajor e lectric
equipment m anufacturers a nd e lectronic c omponent m anufacturers i n Japan, i n ter ms of total
sales, employees, a nd profit. Hitachi, Toshiba, and Mitsubishi Electric are world-famous giant
companies, while Rhom, TDK, and Murata are component companies with sales and employees
roughly one-tenth the size. During the severe economic recession in Japan during the late 1990s,
the t hree b ig c ompanies h ad o nly $1.5 b illion p rofit, w hich i s n ot ter ribly ba d. H owever, t he
smaller company group (they are not “small corporations,” just smaller than the former category)
created twice the profit from one-tenth of the sales. If you are an engineer, which of the two categories would you choose for your career? Certainly, high net profits per employee will be reflected
in bonus and salary payments.
Business administration classes in the United States usually advise students to create bestselling devices to make significant profits for a firm, leading to growth in terms of stock, employees, property, plant, equipment, and so forth. In addition, students sometimes learn about mergers
and acquistions (M&A), which increase corporation size. However, is firm growth really the goal
of a company? Recent legal problems disclosed by large firms such as Enron and WorldCom suggest t here may be a threshold of company si ze. C orporate control mechanisms may not f unction
smoothly above this threshold, leading to moral hazard, i.e., an increase in reckless or immoral
behavior because members of the firm believe they will be saved when things go wrong.
In the 1980s, when the Japanese economy was booming, a giant firm, NEC, decided the firm
should divide into nine smaller firms or divisions. The Japanese managers understood the concept
of a threshold size of the company, contrasting with the U.S. managers’ eagerness for M&A.
1


Entrepreneurship for Engineers

200

150
100
50
0

Rhom
TDK
Murata

Hitachi
Toshiba
Mitsubishi Elec.

700
600
500
400
300
200
100
0

Total Profit (US$B)

◾

Total Employees (1000)

Total Sales (US$B)

2

Rhom
TDK
Murata

Hitachi
Toshiba
Mitsubishi Elec.

3
2.5
2
1.5
1
0.5
0

Rhom
TDK
Murata

Hitachi
Toshiba
Mitsubishi Elec.

Figure 1.1 Comparison between major electric equipment manufacturers and electronic component manufacturers in Japan, in terms of total sales, employees, and profit. (Data from Data
Stream, Japan, 1998)

As an introduction to this chapter, I describe my opinion on “Industrial Evolution,” that is, that

small high-tech firms will lead industries in advanced (matured) countries such as the United States
and Japan in the t wenty-first century. Corporation size suitable in advanced countries is discussed
from historical, biomimetic, and organization viewpoints. Incidentally, “small business,” as defined by
the U.S. Small Business Administration [2], is a firm with 500 or fewer employees and with an annual
revenue under $5 million. Therefore, small businesses encompass a large variety of companies.

1.1.1 Culture Transition
The earliest civilization in the world is believed to have started in mainland China around the Yangtze
River mor e than 20,000 y ears ago . I ndependently, civilizations star ted in I ndia ar ound the I ndus
and Ganges Rivers, and in the M iddle East (Mesopotamia) around the Tigris and Euphrates Rivers.
Around 3000 years ago, these cultures motivated a new civilization in Greece. Rome took the initiative
politically and economically and became the world power around the transition from bc to ad. Rome’s
place was taken o ver by Spain, Portugal, and the U nited Kingdom during the M iddle Ages. They
invaded many countries and expanded their colonial territories. With their economic resources, these
European countries also cultivated sophisticated arts and sciences, culminating in the R enaissance in
the fifteenth century. Refer to Figure 1.2 for the geographical positions of these countries and areas.
After World War II, the U nited States became powerful because most of the industrial world
was decimated while the industrial capacity of the U nited States remained mostly unscathed. The
United S tates was able to supply the world with mass pr oduction of automobiles and electric
devices such as r efrigerators, washing machines, and TVs in the 1950s. H owever, in less than
30 years, Japanese manufacturing industries (in which the triple best sellers ar e the “3Cs ”—car,
cooler, and color TV) caught up to U.S. technologies, making Japan’s corporations the most profitable. This economic dynasty lasted only 10 y ears. The curr ent economic dynasties ar e S outh
Korea and Taiwan with their pr oduction factories in mainland China, which ar e fabricating digital electronic devices (laptop computers, digital cameras, cellular phones, displays, and printers).
“Made-in-China” products currently exceed 80% in the United States.
As a priv ate consultant, I r ecommend U.S. and J apanese companies wor k in the “O riental
Triangle,” that is, Tokyo–Taipei–Shanghai, which is pr esently the most pr ofitable combination
of pr oduct manufacturing. S ome Japanese companies opened factories in mainland China, but
many have not operated smoothly. There are two major r easons for this failur e: (1) language barriers, and (2) cultural diff erences. When SARS fl u spread through mainland China in 2000, one
Japanese company demanded that all executives in its Chinese subsidiar y return to Japan. During
their absence, the subsidiary became uncontrollable because of lack of directorship. If this Japanese

company had chosen a Taiwanese partner as an agent, the language and culture barriers would have